July 31 — Following $12.2 billion in investments across 371 deals during the second half of 2017, fintech investments reached $14.2 billion across 427 deals in the first half of this year. Investors are particularly interested in funding startups for emerging segments such as regtech and blockchain, as well as late-stage companies.
“Unlike the broader VC [venture capital] market, early-stage fintech companies have continued to attract a solid flow of capital in the U.S. with the several top deals in Q2 going to seed or early stage companies,” said Brian Hughes, U.S. national co-lead partner, Venture Capital Practice at New York-based KPMG LLP, producer of the Pulse of Fintech report. “At the same time, those able to attract later-stage funding likely reflects investor confidence in their ability to become market leaders, if they aren’t already.”
Venture capital blockchain investments have already grown by almost $2 million over last year’s final total: investors spent $631 million during the entirety of 2017, but 2018’s spending has already seen $858 million poured into the distributed ledger technology.
“There’s more VC flow available than opportunities to invest — a sign of tremendous growth in the space,” said Safwan Zaheer, financial services digital and U.S. fintech lead for KPMG. “Investments in blockchain related firms already doubled in the first half of 2018 compared to 2017. Blockchain has the potential to transform banking services. If banking systems were to be rewritten today, they would be based on blockchain.”
During the first half of 2018, a number of traditional U.S. banks expanded their digital banking intiatives. JP Morgan, for example, announced the success of a digital bank pilot project and intends to roll out the digital bank option nationally. Citibank also announced a digital-only bank, while Goldman Sachs announced the expansion of its Marcus initiative to the U.K.
Moreover, so-called “blank check” companies are continuing to pop up in the U.S. These companies — which have either no specific business plan or purpose, or which have indicated their business plans are to engage in a merger or acquisition with an unidentified company — were created during the first half of 2018, and more than 25 percent of these operations have indicated they intend to seek out fintech opportunities. The use of blank check companies suggests the increasing importance investors are placing on fintech opportunities and the desire to raise the funds necessary to make a purchase when the right opportunity arises.
Payments and lending sectors, on the other hand, continued to be two of the most mature fintech subsectors in the first half of this year. Most investment activity for these businesses centered on late-stage companies and those companies seeking to exit.
KPMG’s report arrives in conjunction with statements from the U.S. Department of Treasury regarding their intentions to better regulate and support nonbank financial institutions, embrace financial technology and foster innovation.
“American innovation is a cornerstone of a health U.S. economy,” said Treasury Secretary Steven T. Mnuchin. “Creating a regulatory environment that supports responsible innovation is crucial for economic growth and success, particularly in the financial sector.
“America is a leader in innovation,” he continued. “We must keep pace with industry changes and encourage financial ingenuity to foster the nation’s vibrant financial services and technology sectors.”
In a report released today, the Treasury has identified more than 80 regulations designed to:
- Embrace the efficient and responsible use of consumer financial data and competitive technologies
- Streamline the regulatory environment to foster innovation and avoid fragmentation
- Modernize regulations for an array of financial products and activities
- Facilitate “regulatory sandboxes” to promote innovation
Per a release from the agency, Treasury “consulted extensively with a wide range of stakeholders focused on consumer financial data aggregation, lending, payments, credit servicing, financial technology and innovation.”
Going forward, watch for blockchain, regtech and insurtech to gain momentum, even as artificial intelligence and robotic process automation continue to drive cross-sector opportunities. There will likely continue to be an emphasis on partnering with retailers and aggressive tech leaders globally, KPMG’s report finds.